Hong Kong to reintroduce gold futures trading

JoyceKoh

NEW YORK (MarketWatch) - In a response to growing local and international interest in gold trading, the Hong Kong Futures Exchange said Wednesday it will reintroduce gold futures trading on its futures exchange starting October 20.

The long talked-about move by Hong Kong regulators follows the decision by the Shanghai Futures Exchange, one of China's major futures trading venues, to introduce gold futures trading earlier this year.

"It's not necessary a knee-jerk reaction to high gold prices, but a question of pride ultimately," said Jon Nadler, a senior analyst at Kitco Bullion Dealers.

"Hong Kong hopes to capture some of the pie from rising demand," he said. "I think they should do okay since many of the established players are already in Hong Kong. And after all, commodity-based trading is the fashion of the day."

On Wednesday, gold for August delivery tacked on $2 to close at $946.50 an ounce on the New York Mercantile Exchange Wednesday, marking its highest closing level since mid-April.

On the equities side, the SPDR Gold Trust
GLD, -1.05%
added 0.6% to end at $93.17 and the iShares Silver Trust ETF
SLV, -1.05%
gained 1.8% to close at $182.15. The Amex Gold Bugs Index
HUI, -4.10%
fell 3.3% to close at 443.39 points. The Market Vectors-Gold Miners ETF
GDX, -3.68%
fell 2.8% to close at $48.14.

Hong Kong had a prosperous goods futures market in the 1970s, but the rise of the financial market in the 1980s and 1990s made equity indices the only products that could be traded in its futures market.

The rapid expansion of China has pushed Hong Kong, a traditional financial hub, to find ways to capture the benefits of this growth.

"It would be in the strategic interests of the Mainland to have more influence on the price discovery process of the world's commodities markets and related derivatives markets," said Hong Kong's Financial Secretary John Tsang on June 17, referring to China's position as the world's largest consumer and supplier of commodities like precious metals.

"Our active spot gold market and large demand for gold from our local investment and jewellery business makes Hong Kong a natural platform for a gold futures market."

At the Shanghai Futures Exchange, which lists metals such as gold, copper and zinc, trading volumes for the first six months of the year totaled 14 trillion yuan, up 36 percent.

From 2000 to 2006, China was the world's fourth largest gold producer. But the country vaulted to the top position last year and is poised to remain as the leading gold producer with output reaching 300 tons, according to an estimate made by the China Gold Association.

"Ultimately, the two exchanges could coexist together, and it may open up arbitrage opportunities for investors," said Jeffrey Christian, managing director of CPM Group. "As the Chinese economy matures, there will be more and more demand for financial services like futures and options trading."

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.